These 3 stocks could be great Buys, after their earnings dips

These 3 stocks could be great Buys, after their earnings dips

Posted On November 7, 2018 3:50 pm

Some companies that posted stellar earnings reports, saw their shares tumble during October’s broad market sell-off.  This has created an exceptional buying opportunity to get involved in some high growth stocks “on the cheap.”

And if you use call options, rather than buying the underlying shares, you will not only be deploying your capital in a more efficient manner but get the benefit of higher leverage, which could mean bigger gains.

This a pretty unique opportunity, in that over the past few years companies that reported better than expected results were quickly rewarded with a move higher in their stock price.

According to Factset, with nearly 70% of the S&P 500 companies having already reported earnings results, nearly three-quarters have posted numbers beating expectations.  And around 50% have either raised or maintained guidance. In the past, numbers like these would have given shares a boost, sometimes an irrationally large one.

But this quarter, the reactions to those “beats” have been met with selling, which is telling us something about investor psychology right now.

Factset data shows over the prior 8 quarters, that the typical post-earnings beat reaction is that the stock in question rises 1% on average that day. During this quarter, the average reaction has been a drop of 1.5%.

I think this presents some great opportunities.  Last week I discussed how GrubHub was good buy near $87 per share and is now some $8 higher at $95.

Here are 3 more names that could be scooped up cheap in the wake of unwarranted post earnings declines…

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.